Case study on product life cycle of Pepsi

Submitted by:

Samia irshad

Ansa sohail

Nazish shahid

Anmol sajid

Iqra sajid

Submitted to:

prof Anam Rizvi

Product life cycle of PepsiThis post is a business case study on Pepsi's product life cycle.

This is a valuable tool for marketers to manage the product as

it progresses through its life cycle. Managers are encouraged

to anticipate industry changes and have strategies in place for

each stage it promotes a proactive planning approach.

There are five key stages of product life cycle:1) Pre-launch

No sales and profit are made because the product is still in

development.

2) Introduction

initial sales are made to innovators, consumers who enjoy

trying new products, but these are insufficient to recuperate

development costs.

3) Growth

sales being to increase rapidly as the product gains

popularity among the early majority. It is at this stage that

profits are first generated.

4) Maturitythis is the longest stage and generates the majority of a product’s

sales and profits from the late majority. To ‘milk’ the product for as

much profit as possible, extension strategies are often implemented

to pro-long the maturity stage.

5) Declineeventually all products stop selling, such as VHS tapes. As

expected, sales begin to decline until the product is no longer

profitable.

At each stage, marketers should adapt their marketing strategies to

the external changes in the market place. Let’s take a look at

how PepsiCo have used the product life cycle to successful grow

Pepsi into one of the most consumed drinks in the world.

Product life cycle of Pepsi1) Pre-launch – the 1890sIn 1898, pharmacist Caleb Bdraham developed’ Brads Drink a

formula designed aid digestion. After strong interest from

consumers in his pharmacy, Brad renames the drink ‘Pepsi-Cola’

and purchases the trademark ‘Pep Cola’ for $100. The origins of

Pepsi are very similar to that of lucozada, which was also first

produced for medicinal purposes.

2) Introduction – 1902Brad began selling Pepsi-Cola and achieved sales of

7,968 gallons of syrup in the first year

Objectives:Brad aimed to generate initial awareness and trial of his

product, and far exceeded his targets!

Product:Only a basic product was launched – Pepsi-Cola was

initially sold even without bottles. Instead the product

was sold through soda fountains located in Brad’s

pharmacies.

place:A highly selective distribution is initially recommended, and

this is evident with Pepsi-Cola only launching in Brad’s

pharmacies.

Advertising:To generate awareness, a celebrity endorsement with race-car

driver Barney Oldfield (above) was utilized.

Price:Initially a simple cost-plus pricing strategy was used. It is

likely that Pepsi-Cola started with a skimming strategy, to

quickly recuperate start-up costs.

Sales-promotion:Pepsi-Cola was not launched with any promotions. However, if

promotions are used at this stage they should aim to encourage

consumers to trial the product.

3) Growth – 1930s-1970sAfter bankruptcy and then becoming acquired by Loft Inc.,

Pepsi-Cola’s sales sky-rocketed in the great

depression. Consumers were attracted by the value-for-

money competitive positioning: 5 cents would buy

consumers 12 ounces of Pepsi-Cola, but only 6 ounces of

Coca-Cola.

Objectives:During growth, gaining market share is critical. Hence,

Pepsi-Cola was marketed aggressively against Coca-Cola to

encourage consumers to defect.

Product:As the market becomes increasingly competitive it is

important to continually improve the product. Hence,

Pepsi-Cola now came in bottles, rather than just soda

fountains.

Price:To support the aim of gaining market share, the low price

penetration strategy was one of the key reasons why the

brand grew massively in this time period.

Place:An extensive distribution network is needed to support

rapid sales growth; therefore exclusivity to pharmacies

ended and the product became a mainstream consumer

good.

Advertising:It is vital to capture the early majority stage, requiring

that advertising was designed to effectively reach a mass

audience. For example, Radio was selected as a medium

because of its low cost-per reach During this time, the

name was changed to just ‘Pepsi’ to help differentiate the

brand from Coca-Cola. Lastly, the 1975 Pepsi Challenge

marketing campaign was so effective it almost destroyed

the Coca-Cola brand!

Sales-promotion:Due to the overwhelming success of the drink, no sales

promotion was used given that the price was already

highly competitive and the company struggled to keep-up

with demand.

4) Maturity – 1980s – Present daySince the 1980s Pepsi has been in the maturity stage of the

product life cycle, helping the parent company earn

almost $20 billion in annual revenue.

Objectives:At this stage products are most profitable, which is why

PepsiCo are likely to consider Pepsi as a cash cow and aim

to make as much profit as possible from the brand.

DEFINITION OF 'BCG GROWTH SHARE

MATRIX‘A portfolio planning method that evaluates a company

strategic business unit in terms of its market growth rate

and relative market share SBU are a classified as star, cash

cows, question marks or dogs.

Star :stars are high growth, high share business or products.

They often need heavy investment to finance their rapid

growth. eventually their growth will slow down and they

will turn into cash cow

Cash cow:cash cow are low growth high share business are product. These

established and successful SBU need less investment to hold their

market share. Thus they produce a lot of cash that the company

use to pay its bill and support other SUB that need investment

Question marks.Question mark are low share business unit in high growth

markets. they required a lot of cash to hold their share let alone

increase it.

Dog:dogs are low growth low share business and products. They may

generate enough cash to maintain themselves but do not promise

to be large source of cash.

Product:Now that the product is well established, entire ranges can

be introduced that act as extension strategies to prolong the

most profitable stage of the product’s life.

Price:PepsiCo and Coca-Cola clearly do not want to enter price-

wars, which is a high risk during this very competitive

stage. As a result, the price rarely fluctuates away from the

market average.

Place:The product now has a global distribution to penetrate

emerging economies.

Advertising:The main focus of Pepsi’s advertising during maturity to

is to differentiate the brand. This has been mainly

achieved through the use of celebrity endorsement like

beyonce and michael jackson Beyonce to position the

product as a younger and edgier alternative to Coca-Cola

Sales-promotion:To keep consistent with the brand’s value-for-money

positioning, Pepsi frequently have both value increasing

and value adding offers. An example of the former is

offering larger bottle sizes – still to this day – than Coca-

Cola; and the latter can be seen in the competitions

advertised on Pepsi’s bottles.

5) Decline – sometime in the futureDespite growing consumer interest in healthier lifestyles,

sales of Pepsi show no signs of slowing down in the

immediate future. Regardless of this, it is recommended that

PepsiCo have the following strategies ready to be

implemented in the event of the product entering decline.

Objectives:Cost-reduction is key at this stage to help the brand remain

profitable despite generating fewer sales.

Product:The range should become rationalized, and may be reduced

to just Pepsi to leverage economies of scale and minimize

costs.

Price:The price could be reduced further to increase sales among

price-sensitive consumers and be an effective advertising

cue for this low involvement product.

Place:The product now returns back to selective distribution to

focus efforts on just the few remaining outlets that

generate profits on Pepsi.

Advertising and Sales Promotion:

It can be recommended that PepsiCo could go as far as

completely cutting advertising and sales promotion to

further reduce overheads

In summary, the product life cycle of Pepsi is a

great business case study that both students and

managers can learn from. They key points to

remember are that marketing strategies need to be

ready for implementation, before the product

enters each phase of the life cycle, otherwise

opportunities are missed and the brand becomes

reactive to change.